News & Noteworthy

Authored - NJ Contract Law Update - Partnership Agreement May Impair Existing Partners' Rights Against New Partners, If The Obligations Of The Newcomers Are Not Clearly Spelled Out

AUGUST 22, 2013 |Windels Marx - Commercial Litigation

Hughes v. Mainka, ___ N.J.Super. ___ 2013 WL 2660541 (App.Div. June 14, 2013), deals primarily with idiosyncratic issues relating to partnership law and partnership agreements. While the latter are, of course, contracts, they are of a sui generis nature warranting separate study of the case-law1 and applicable statutes.2

The main issue of general contract law advanced by Hughes is the need to be as explicit as possible--when giving benefits of an agreement (such as a partnership) to a newly signed party/partner--as to the precise obligations simultaneously thrust upon the new party/partner.

Because (according to the Court's ostensible rationale) the Hughes partnership agreement was not explicit as to the precise nature of certain guarantee obligations (which the defendants felt the plaintiff had assumed when joining the partnership), the burdens defendants tried to impose on the plaintiff were rejected by the Court.

The Court was also influenced by what it seems to have concluded was subsequent conduct by the managers and partners that created a disparate benefit for themselves at the ostensible expense of the limited partners.

The moral of the story is that in addition to the attorney's need to be fully familiar with partnership law before addressing such a controversy, clients involved in partnerships should (1) be fully versed in their obligations under the statutes and fiduciary principles, or (2) consult counsel with greater frequency than they usually do. Moreover, in any contract granting benefits under the contract, the obligations should be spelled out with equal or greater clarity, and directly and expressly tied to the party(s) to be held liable.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 Prior articles in this series emphasized the need to be aware of--and to seek help as needed regarding--specialty areas such as this.